After facing two consecutive days of losses, the markets are rebounding a bit today. Alcoa (AA) kicked off earnings season with some better than expected results. A few other big names will be reporting their earnings in the next week including Wells Fargo & Co. (WFC), Charles Schwab (SCHW), Whirlpool (WHR), Intel (INTC), and Johnson & Johnson (JNJ).

Last Thursday, the Bureau of Labor Statistics reported that nonfarm payroll rose by an impressive 288,000 in June, the fifth consecutive monthly gain in excess of 200,000.

Since the start of the year, payrolls have grown by an average of 231,000 per month, the fastest first half since 1999 (BLS, First Trust).

In some respects, we’re seeing a disconnect between the latest estimates for Gross Domestic Product and rising payrolls.

Last week the forecasting firm Macroeconomic Advisors slashed its Q2 Gross Domestic Product (GDP estimate by 0.6 percentage points to 2.7% (Wall Street Journal)). If the forecast holds, the economy will have stalled in the first half of the year (GDP shrank 2.9% in Q1 per the BEA). A note of caution is in order. Early estimates for Q1 GDP came in at around +1% (Bloomberg), far too optimistic. There is still plenty of data and more complete revisions to sift through before we get a clear picture of Q2 GDP.

(Disclaimer: Any individual stocks mentioned in this article are not to be viewed as recommendations. We are simply reporting sample names of random companies who are releasing their earnings reports.)

The markets closed early today in observance of the holiday, but they closed with strength. The Dow Jones finally broke through the 17,000 mark closing at 17,068.26. Both the Nasdaq & the S&P 50 also closed higher today. There was optimism after the latest jobs report from the Department of Labor, which showed greater employment numbers than economists had forecasted. U.S. employers added 288,000 jobs in June and unemployment dipped to 6.1%.

Gross Domestic Product (GDP), which is the largest measure of goods and services in the economy, was revised from a 1.0% annualized rate of decline in Q1 to a contraction of 2.9% (Bureau of Economic Analysis - BEA). See Figure 1. Economists surveyed by Bloomberg had forecast a smaller 1.8% drop.

First, let me emphasize this is old data – January through March – and we’re about to enter July, which is the start of the third quarter.

Stocks pretty much ignored the report, as markets are forward-looking, i.e., they hope to anticipate changes in future economic growth, corporate earnings, etc.

Health-care juggernaut

The reason for most of the steep downward revision falls on health care spending. Previously, the BEA had reported that expenditures on health care added a sharp 1.01 percentage points to GDP.

Much of the drop occurred amid the difficulty in estimating the impact of the new health-care law, which took effect in January (Wall Street Journal).

It’s possible we could see an Obamacare bounce in the Q2 data, but at this point, that’s highly speculative. Until the dust settles, the overhaul of about one-sixth of the economy (The World Bank) could create plenty of uncertainty in GDP numbers going forward.

Though the stock market ignored the report, the bond market rallied, pushing yields lower. You see, the bond market tends to take on a more “ghoulish” perspective, as weak economic news typically encourages a flow of cash into Treasuries.

Yes, it’s old data, but bond market participants may be trying to sniff out underlying economic troubles.

In fact the next day, the BEA reported that real consumer spending, or spending that is adjusted for inflation, fell 0.1% in May, which comes on top of a 0.2% decline in April.

Since spending makes up almost 70% of GDP, the lackluster report forced a number of analysts to lower forecasts for Q2 GDP, including Macro Economic Advisors which reduced its estimate from 3.5% to 3.2% (Wall Street Journal).

We still have plenty of data to sift through, including yet-to-be released reports and any accompanying revisions, but as it currently stands, the first half of the year may show very little growth.

On a brighter note, personal income (total income) has recently accelerated (BEA data) amid the pick-up in job growth, which may support spending as we head into the second half of the year. Stay tuned.

A look at the holiday-shortened week

The stock and bond markets will close on Thursday July 3rd at 1 p.m. ET and 2 p.m. ET, respectively, and will be closed all day Friday.

In addition to the July 4th festivities, the Bureau of Labor Statistics will offer up the latest on employment growth and the jobless rate. It’s not only important to those who have suffered from the ravages of the Great Recession, but it’s a key measure of economic activity that the Federal Reserve is monitoring.

Strong growth likely hastens the day when short-term interest rates begin to rise. Sluggishness, however, could delay any rate hikes. We’ll get the numbers on Thursday morning.

In the meantime, we wish all of you a safe and happy Independence Day celebration with your family and friends! Our office will be closed Friday in observance of the holiday.

The attached article is a good reminder about the importance of maintaining a strong financial foundation. With financial literacy still lagging as an important subject in the school systems, it is vital to be able to have some basic guidelines as young adults start down their own path towards financial independence. Although these suggestions may be geared towards a younger crowd, there are several valid points that all adults should be reminded of as good practices.

You may have already heard the expressions – Federal Reserve hawks versus Federal Reserve doves. If not, a quick definition is in order. Hawks focus on sound money, are more worried about inflation, and are more likely to want to raise interest rates to snuff out any hint of inflation that may be on the horizon.

The dovish side is more likely to tolerate a very modest level of inflation. The doves on the Fed are more worried about slow economic growth and favor low interest rates as a way to promote economic activity.

If you’re keeping score over the last five years, the dovish view has triumphed. Monetary policy has been extremely easy, inflation has remained low, and economic growth has failed to live up to expectations.

The latest Fed meeting last week, including the accompanying press conference with Fed Chief Janet Yellen, confirmed the leadership at the Fed is in no mood to change direction. That comes despite a recent uptick in inflationary pressures. But then, it was highly unlikely the Federal Reserve would threaten the fragile recovery by tightening the monetary screws or hinting at such a move.

Market Review

Today we saw the indexes trade mostly lower to start the week.

The May existing home sales report revealed that sales were up 4.9% which is the highest percentage gain since 2011, and the second month in a row we have received positive news. Despite this, sales are still weaker than last year, and first time home buyers with modest income are still facing some headwinds. More data on the housing market is due Tuesday when Standard & Poor's releases the Case-Shiller Index of home prices for April and the government reports on new home sales for May.